Travel + Leisure Co (TNL) 2017 Q2 法說會逐字稿

Good day, everyone, and welcome to the Wyndham Worldwide second-quarter 2017 earnings conference call. As a reminder today's conference is being recorded. If you have any objections you may disconnect at this time. I will now turn the call over to Margo Happer, Senior Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining us. With me today are Steve Holmes, our CEO, and Tom Conforti, our CFO.

Before we get started I went to remind you that our remarks today contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10-K filed February 17, 2017 with the SEC and are noted in our press release yesterday.

We will also be referring to a number of non-GAAP measures. Reconciling GAAP measures are in the tables provided in the press release and are available at our Investor Relations section at our website at wyndhamworldwide.com. Steve?

Thanks, Margo. Good morning and thank you for joining us today. As usual, Tom and I will review our results for the quarter and the highlights of each of our businesses. Before we do that though I would like to start by providing some perspective on the announcement we made yesterday that we will spin off the Company's hotel business and become two separate publicly traded companies.

As those of you who have followed our Company for some time know, since Wyndham Worldwide was created our Board and management team have maintained a sharp focus on driving shareholder value through strong day to day execution and smart disciplined capital allocation. We have worked to generate strong cash flow, reinvest portions of that cash in the business when it would be accretive to value and return significant amounts of capital to shareholders through dividends and share repurchases.

Over the years we have regularly evaluated alternatives for additional value creation; however, we also recognize the substantial benefits from connecting our unique collection of hospitality brands with what we refer to as blue threads, which include Wyndham Rewards and other cross business unit and brand affiliations.

With the work we have been doing in recent years to incorporate these blue threads across the Company, we determined that we were now able to move forward with a separation. Going forward both entities will have long-term agreements retaining their affiliation with initiatives such as Wyndham Rewards. With those elements in place we are confident that a spinoff of the hotel business and the combination of Wyndham Vacation Ownership with RCI is the best structure to unlock shareholder value and enable strong long-term growth across the businesses.

The transaction is expected to increase the fit, focus and strategic flexibility of the two post-spinoff Companies, allow each Company to maintain a sharper focus on its core business and growth opportunities, facilitate future capital raising is needed for the two companies, and position each Company to be better able to make changes necessary to respond to developments in its markets.

Now let me review the details of the transaction. At closing we will create a new publicly traded hotel business and make a distribution of the new entity's stock to existing Wyndham Worldwide shareholders. We expect the transaction to be completed in the first half of 2018 and to be tax-free to both Wyndham Worldwide and our shareholders.

As a result of the transaction, Wyndham Vacation Ownership with headquarters in Orlando, Florida will be the world's largest publicly traded timeshare business with a portfolio of over 220 resorts throughout the United States, Canada, Mexico, the Caribbean, South America and the South Pacific, a strong sales and marketing platform and over $2 billion in gross timeshare sales.

This Company will include RCI, the world's largest timeshare exchange Company with over 4,300 affiliated properties in more than 100 countries along with our US vacation rental brands. The post spin publicly traded timeshare Company will have significant operating scale and we expect it to generate abundant cash flow resulting in a dynamic platform for growth.

Wyndham Hotel Group, with headquarters in Parsippany, New Jersey, will be a new publicly traded pure play hotel company with a global portfolio of 18 renowned brands encompassing more than 8,100 franchised hotels and approximately 706,000 rooms in over 80 countries. The Company will move forward with a proven asset light fee-for-service global franchise model and is expected to generate strong margins and significant cash flow.

Separately, as we move through this spinoff, we will work with the leadership of our European rental brands to explore strategic alternatives in an effort to fully realize their potential. These are strong businesses with established and well known brands in their regional markets and truly phenomenal leadership and teams behind them.

Both the timeshare and the hotel companies will have strong proven management teams and outstanding teams of dedicated professionals supporting them. Mike Brown, who we brought in recently as CEO of Wyndham Vacation Ownership, will continue to lead the timeshare business as President and CEO. Geoff Ballotti, current CEO of Wyndham Hotel Group, will continue to lead the hotel company as President and CEO.

I will serve as nonexecutive Chairman of the Board of both companies. I look forward to working with the leadership of these companies to build on our momentum and focus on enhancing shareholder value. Tom Conforti will move into an advisory roles working with us through the completion of the spin. As we begin this next chapter Tom and I agree that now is a good time to make this change to support a seamless transition to the leadership of the new companies.

Tom worked closely with the Board and me to get to our announcement today. His contributions to the Company and for our shareholders are significant and our gratitude to him runs deep. Tom was pivotal in focusing the Company on free cash flow generation and in helping to take that story to the Street. This resulted in the nickname internally and externally of Cash Flow Conforti. We look forward to hearing about his future successes.

David Wyshner will assume the roles of Wyndham Worldwide Chief Financial Officer and will become Chief Financial Officer of the hotel company upon spin. David was most recently President and CFO of Avis Budget Group.

Prior to that David was Executive Vice President and Treasurer of Cendant where he led the execution of the Company's separation into three publicly traded companies, one of which was Wyndham Worldwide. He is an ideal candidate to lead us through this transition and will be a strong partner for Geoff in the Hotel Group. We are thrilled to have him on board.

We will provide more information on the management teams, corporate names, Boards and other details of the post-spinoff companies as we move along in the separation process. In addition, I am sure many of you have questions about the capital structures and capital allocation philosophies of the two post-separation entities, their expected credit ratings and related matters. We are working on capital structure and will of course be in ongoing discussions with the rating agencies. When we are in a position to provide more information on these matters we will do so.

In terms of next step, we currently expect to file our initial Form 10 with the SEC by year-end. This will provide more details on the proposed separation including financial and other details. We will also be working on finalizing intercompany agreements and arranging financing facilities for both entities.

The transaction will be subject to final approval by Wyndham Worldwide Board of Directors and the effectiveness of the registration statement. We also intend to seek a ruling from the Internal Revenue Service with respect to certain aspects of the transaction. The separation will not require a shareholder vote.

As I said earlier, we expect to complete the separation in the first half of 2018 but, as you know, we cannot give any assurances regarding the ultimate timing of the separation or whether it will ultimately occur.

Finally, let me say that I wouldn't be reaching -- we wouldn't be reaching this milestone without the dedication, hard work of the incredible team of talented professionals who have built these businesses and brands into industry leaders over the past decade.

We are confident that this separation is the best structure to enable future success across the businesses for the benefit of our shareholders, owners, guests, partners and importantly our associates. I thank them for their hard work for our shareholders, dedicated service to our customers and commitment to building the culture which enables Wyndham Worldwide to be an award-winning global leader in hospitality. I know we can count on them to continue to deliver in the months and years ahead.

I am thrilled to be part of this Company and couldn't be more proud of what the team has accomplished so far. But I am even more excited by what lies ahead. With that let me turn to the second-quarter results.

This was a solid quarter. We are seeing great top-line and operating momentum across the business. Consumers are out traveling and our businesses are well positioned to capture that demand. Let me tell you why, starting with the Hotel Group.

Our brands garnered four of the top five economy hotel spots in the 2017 J.D. Power Guest Satisfaction Index, and our Wingate by Wyndham brand remained in the top spot in the midscale segment. These rankings clearly reflect the quality initiatives we have put in place over the last several years.

With this strong base we are expanding our system. In June we introduced the Trademark Hotel collection, a new soft brand concept for owners of three and four star independent hotels. The Trademark collection enables upper mid scale and above hotels to participate in the benefits of our distribution and scale, including our leading loyalty program, while maintaining their independent identities. We already have 15 hotels in the system and have strong pipeline.

We also recently announced an agreement to acquire our 19th brand, AmericInn. This midscale brand's 200 hotels and approximately 11,600 rooms are located largely in the Midwest. It's a great acquisition as it increases our position in the attractive midscale space.

The AmericInn brand has strong quality scores and guest satisfaction ratings with consistently high rankings in the J.D. Power midscale brand survey. And of course we look forward to offering the benefits of the Wyndham Rewards program to AmericInn guests. We are excited to welcome AmericInn to the Wyndham Hotel family of brands. We expect the deal to close in the coming months and be accretive to earnings next year.

We continue to make great progress on Wyndham Rewards. Membership is now up to 52 million, over a 10% increase since last year. In addition, we recently announced an alliance with Caesars Entertainment, the first expansion for us beyond the Wyndham family of brands, which will unite two of the world's highest-ranking hotel and casino loyalty programs.

Now looking at our Destination Network business, we continue to see strong growth from our vacation rental brands with healthy increases in organic unit count, occupancy and price. Performance has been particularly strong in Europe where we have been investing more heavily in recruiting, services and the guest experience to drive long-term growth.

A great example of this is our Landal GreenParks brand. Landal has enjoyed outstanding growth over the last several years driven by its strategy to enhance the guest experience. Such enhancements include newly renovated restaurants in central facilities providing a more upscale experience.

For example in July the largest indoor waterslide in the world, which our partner built, was opened at Hof van Saksen, one of Landal's luxury resorts. We expect a packed summer at Hof van Saksen and across all of our parks.

Now let me turn to Wyndham Vacation Ownership. Mike Brown has been on board now three months. He has completed nearly 30 site visits and seen over 50% of the vacation ownership sales operation. He has quickly established himself as a respected leader across the organization. He is excited about growing our leadership position. He sees great opportunity with our seven timeshare brands and our diversified marketing platform and he is excited by the energy and focus of the team which has tremendous momentum, evident in our recent results.

Gross VOI sales were up 9% in the second quarter and tours increased over 10%, our biggest increase in over three years. We are making great progress toward our goal of bringing in new owners with a 10% year-over-year increase in the second quarter. Every month has shown positive momentum with July looking like our strongest month yet.

Especially exciting is that 40% of our sales volume last month was in new owners. Our focus on new owners will be supported by activation of the blue threads between our hotel and timeshare businesses where there's a huge opportunity to tap an existing customer base.

Our average hotel customer is 54 years old, married with $70,000 household income. This aligns well with our typical timeshare owner, it's a natural fit. Through enhanced call transfer, special member promotions, and more hotel loyalty guests at timeshare resorts through reward redemptions we expect the hotel ecosystem to contribute significantly to our new owner tour growth this year and will be more significant in years to come, resulting in high quality efficient sales.

Preliminary results indicate that new owner tours generated through our blue thread could result in VPG that is 20% higher than our new owner tours generated through our traditional channels.

Wyndham Vacation Ownership's strategic priorities, as Mike articulated to his organization last week, are to: number one, leverage the hotel ecosystem to its full potential; number two, grow our owner base; number three, execute a financial strategy that delivers organic and sustainable growth; number four, strengthen our culture of committed, empowered and accountable associates; and number five, deliver great vacations and countless memories for our owners. He is well on his way.

With that I would like to turn the call over to Tom to walk you through more details on the quarter results and what we expect for the remainder of 2017. Tom?

Thanks, Steve, and good morning, everyone. Our businesses did perform well, as Steve mentioned, with strong top-line momentum as revenues increased 5% and adjusted EBITDA increased 4% on a currency neutral basis and excluding acquisitions. We were especially pleased that gross VOI and vacation rental revenues both increased 9%, again on a constant currency basis and excluding acquisitions.

Our Hotel Group made solid top-line gains in the fairly modest RevPAR growth environment. These results clearly demonstrate the momentum of our businesses. Earnings growth would've been higher if not for the anticipated higher provision for loan loss, higher legal fees and the absence of a $4 million business interruption claim that we received in 2016.

During the quarter, we repurchased 1.6 million shares of stock for $150 million. We reduced our weighted average diluted share count by 7% year over year. In addition, we repurchased almost 500,000 shares for $50 million from July 1 through August 1.

Now let's take a look at the second-quarter performance of each of our business units. At our Hotel Group revenues increased 3% and EBITDA increased 6% on a currency neutral basis and excluding acquisitions, reflecting higher franchise fees and growth in the Wyndham Rewards credit card program.

Same-store global RevPAR increased 3.3% in constant currency reflecting growth in all major regions. Same-store domestic RevPAR increased 2.8% while total store domestic RevPAR increased 3.4% in the second quarter compared with the industry at 2.7%, including a 110 basis point out-performance versus the industry for our economy segment hotels.

Performance was particularly strong in the South Atlantic, Pacific and mountain regions which make up over 40% of our system, and all had RevPAR growth of over 5%. Geographically, growth was particularly strong in Florida and California where RevPAR increased 9% and 7% respectively. Net system size grew 3.3% year over year.

Room growth is supported by a development pipeline of nearly 151,000 rooms, up 18% year over year and 5% sequentially driven by increased domestic and international new construction. Growth in our domestic pipeline was particularly strong, up 29% year over year and 11% sequentially.

Now moving on to Destination Network, revenues increased 5% and EBITDA increased 6% excluding acquisitions and on a currency neutral basis. Results reflect strong performance at our vacation rental brands, which benefited from the favorable impact of the Easter holiday falling in the second quarter this year. EBITDA also benefited from the reversal of the $3 million value added tax reserves.

Vacation rentals revenue increased 9% in constant currency and excluding acquisitions. A 7.8% increase in transaction volume, or 12.5% including acquisitions, reflected higher demand and capacity increases across our European rental brands. Average net price per rental increased 0.9%. Both revenue drivers benefited from the timing of Easter, most significantly at our Netherlands-based Landal GreenParks.

At RCI exchange revenues increased 1% in constant currency reflecting a 2.4% increase in revenue per member, partially offset by a 1.7% decline in the average number of members. Revenue per member benefited from pricing increases while the average number of members declined due to increased member attrition in our lower transacting club membership base.

At Vacation Ownership, revenues increased at 6% reflecting higher gross VOI sales and higher consumer financing revenues partially offset by a higher provision for loan loss. Despite the great top-line momentum, adjusted EBITDA declined 2%, largely reflecting the absence of a $4 million business interruption claim that we received in the second quarter of 2016, the higher provision for loan loss and $6 million of higher legal expenses. Our legal expenses should return to a more normalized run rate in the third quarter.

Note that reported EBITDA reflects a $135 million impairment charge. After an in-depth review of operations by Mike Brown and the Vacation Ownership leadership team, including its current development pipeline and long-term development plan, the team determined that it no longer made sense to pursue development at certain locations where we owned undeveloped land. Instead their focus will be on selling existing finished inventory and pursuing asset efficient inventory.

We were really pleased to see that gross VOI sales increased 9% compared with the second quarter of last year, fueled by a 14% increase in sales to new owners in North America. The sales team has great momentum. Results reflected a 10.3% increase in tour flow, partially offset by a 1.1% decline in VPG. Tour flow benefited from a 16% increase in tours to new owners. The decline in VPG reflects the increase in sales volume to new owners which produced a lower VPG.

The provision for loan loss was $110 million, an increase of $20 million, in line with our expectations and driven meaningfully by higher sales volume. Defaults increased $13 million to $86 million.

Moving to Corporate, expenses declined 15% due to lower employee costs. In addition, our consolidated adjusted tax rate declined over 100 basis points to 35.4%, largely due to a change in accounting rules associated with stock-based compensation expenses.

We generated $581 million of free cash flow year to date compared with $616 million over the first six months of 2016. The decrease reflects higher inventory spending and the timing of working capital. We are on track to hit our $800 million neighborhood target for the year.

Now let's turn to guidance which will be posted on the website after the call. As you saw from the press release, we are increasing our adjusted diluted EPS guidance to $6.04 to $6.24 a share for the full year, and diluted share count goes to 104.5 million shares, reflecting the benefit of our second-quarter share repurchases.

We are reiterating total Company as well as business unit revenue, adjusted EBITDA and driver guidance. Our interest expense guidance has been increased by $6 million to $148 million to $152 million reflecting the initial estimates relating to the proposed spinoff transaction as well as the pending acquisition of the AmericInn Hotels and Suites brand. Offsetting this increase is a 35 basis point decline in our projected tax rate to 36.25%, reflecting our favorable year-to-date adjusted rate.

Now turning to the third quarter, we expect adjusted diluted earnings per share of $1.97 to $2 on a share count of 103.8 million shares. Remember that we don't budget next quarter repurchases into our guidance while many of our covering analysts do.

With yesterday's announcement you should know that we remain committed to our capital allocation philosophy through spin and our dividend will remain in place. However, we may decide to be more opportunistic than programmatic on share repurchase.

Finally, as Steve noted, I will be transitioning my role here at Wyndham to an advisory capacity for Steve. I am proud of what we have accomplished over the past eight years and grateful to have been a part of this amazing Company and to have been a part -- a very small part of its success.

While I will be involved through the spin, I expect that this will be my last earnings call. I couldn't be more excited about the direction of the Company and I look forward to contributing to its continued progress. And mostly I look forward to staying in touch with many of you. With that, Steve?

Thanks, Tom. In closing let me reiterate that we have a great Company with powerful businesses. Our solid second-quarter results reflect that fact with good top-line momentum. We continue to be focused on driving shareholder value, delivering great vacations and countless memories for our owners and guests and providing our associates with a rewarding place to work.

Finally, as we just celebrated our 11-year anniversary as a New York Stock Exchange listed company, it's worth noting that since our spin in 2006 we have generated $6 billion in free cash flow. We have returned $6.7 billion to our shareholders through share repurchases and dividends. And finally, our dividend adjusted share price has increased almost 300% resulting in a 13% annualized return for shareholders. It's a great legacy on which to build. With that, Keith, we will take questions. Thanks.

(Operator Instructions). Joe Greff, JPMorgan.

Good morning, guys, and congratulation on today's news. I know this involves and probably still involves going forward a tremendous amount of work. So kudos to you all.

Thank you.

I want to start off just with respect to the European rentals business. Can you give us a sense of how much the European rentals business generates in annual EBITDA? I don't know if you want to give us margins or percentage of revenues and we can back into it.

And then with respect to the segment, have you tried to sell this business previously? What transactions do you look at as a valuation benchmark? And then, staying on this topic, I would imagine the cost base is pretty low. So how do you think about tax leakage or ways to minimize tax leakage? Then I have a couple of smaller follow-ups.

Okay. Well, instead of making you do the math to get to where the rental EBITDA is, I will tell you it's around $130 million. And I could give you revenues and margin -- 15% margin, but that gets you to the chase.

These are great businesses and, you are correct, we acquired these and a number of other -- we acquired these businesses over a period of time. And without a doubt their value now is greater than it was when we bought them. We like to think we had something to do with that but these are great businesses that have 60-, 70-year histories.

We have received over the years indications of interest on the businesses. We never really thought that it was the right thing to do, nor did we know whether the offers were legitimate, so we didn't go very far on any of those. But we think there will be interest in these. They are powerhouses in the European rental marketplace, by far the largest collection. And we will have to see.

Our thought process right now, and we don't know -- we haven't launched a process yet and we don't know what other alternatives might be available for those businesses, so we will go through that process with the team over in Europe. But if it comes in at what we think is a -- what we are told is kind of an expected multiple, and I'm not going to say what that expected multiple is, it probably generates $1 or $2 of breakage, per share breakage.

Now that all depends on what happens with tax laws and whether we decide not to repatriate the money because there is something great to do with it internationally. But that is ballpark where we will end up.

That's helpful. And then with respect to what you announced today in terms of spinning the transaction in total, what will be the all-in cash cost to effect the transaction? Does $300 million sound in the ballpark? And I would imagine a big part of that is going to be what you plan on doing on the balance sheet and refinancing, which I know you don't want to talk about, can't talk about now. But does that seem to be in the ballpark?

$300 million sounds a little bit high. We don't have everything worked out yet and obviously we have a lot of work to do with our bondholders. And I mean it's too early to tell, Joe, to be honest with you. But I mean just my gut says that's a little bit too high.

Mine as well.

Okay and then with the European rentals business going away in whatever form or fashion, I'm presuming some of the allocated corporate expense goes away. And then when you think about the net increment to corporate expenses, $25 million, $35 million, does that sound in the right ballpark?

No, I don't think so. And again, we've got a lot of work to do to come to the -- to really build the pro formas for these businesses. But we are looking at it as it's going to be a net zero or maybe a little bit less than zero. So there may be some overall reduction.

Perfect. And then with respect to your AmericInn acquisition, do you want to give us a sense of what the transaction multiple there was?

As normal, no, because we really don't tell what we are paying for businesses or what we think we are going to sell businesses for. But -- because again, our creation multiple is often different than others because of the efficiency of our infrastructure.

This one is further complicated by the fact that there are 20 hotels that are -- I'm sorry, 10 hotels that are owned that need to be liquidated. And so, we are going to have to go through the process. We have been in discussions with people and we think we've got a pretty good feel for how we can get that done very quickly, but that will also determine what our ultimate multiple is.

(Operator Instructions). Chris Agnew, MKM Partners.

Thanks very much. Good morning. And if I can echo the sentiments, congratulations to you all. If I can ask on -- first question on the legal expenses in the timeshare business. You say they are going to normalize in the third quarter. What gives you the confidence that that's the case? And can you shed any light on what happened in the quarter and any update on the third-party issue? Thank you.

So, the legal issue has been in existence for a little while and we saw it in the first quarter, we saw it in the second quarter. And basically the reason we feel that we've got this behind us is the cases that we were dealing with have been resolved. And so, there are no longer -- these particular type of cases are no longer out there. And I don't want to go into really any more detail than that, Chris, but we feel comfortable that it's behind us. On the PPE --.

On PPE, I think everyone needs to realize that if you grow your gross VOI by 9% that fact alone is going to push the provision higher because it's a mechanical percentage of whatever your revenue is. So the single largest contributing factor to the growth in provision for the quarter was the fact that Mike and his team did a 9% gross VOI number. So it was worth about 40% of the increase.

As it relates to PPE, PPE came in underneath that, but it's still a number that I think we would all agree we'd like to bring down a bit. It contributed a lower number -- of the $20 million increase it contributed around $5 million of the $20 million with volume contributing more than that and the rest are various other factors.

Thank you. And if I could follow up, you had strong core metrics in timeshare. How much of that was driven by these initiatives to increase connectivity with the hotel business and the blue thread, etc.? Or are a lot of those benefits still to come? Thank you.

Well, the end of that statement is the correct one. A lot of those benefits are still to come. We really have -- we've determined that we have the elements in place to start taking advantage of the efficiency of generating tours from our Hotel Group. But I think if Mike Brown were on this call right now he would say we've just scratched the surface.

And I think I may have mentioned on the last call, maybe I didn't, that his first new hire was somebody who was in this space, in the marketing space for call transfer and for being able to get people on vacations with us through the hotel channel. And so, I think we've got a lot of work to do but it's exciting with. Both the teams are very, very focused on it, and so I think you will really start to see those benefits in the coming quarters and years.

I think what you saw in the second quarter, the ramp up in revenues and particularly new owners, is at the beginning of the year we talked about the fact that we were focusing more on new owners and the team began to execute on that. And they began lining up the tours necessary to drive the business. And as I have said before, this is very much a marketing generated business.

And if you market the tours and bring them in we've got a fabulous sales organization that will complete the process. And we ramped up the tours on the front side and that has resulted in this increase. The benefit of what Mike is doing with the blue thread and what both teams are working on will really -- you might start to see some of it in the second half of this year, but the bulk of that impact will come in 2018 and beyond.

Thank you. And once again congratulations.

Patrick Scholes, SunTrust.

Hi, good morning. Thank you. Certainly if you know me, I'm usually the last person ever to say anything nice on an earnings call or congratulate anybody, but I will make an exception here. Congratulations, Steve and Tom. You certainly have come a long way from that fateful day in March of 2009 which some of us old-timers can recall. So congratulations there and also congratulations, Mike and Geoff.

Steve, can I get some high-level initial thoughts on the possible capital structure of these two spins? Certainly you have Choice Hotels at about a 3 times net debt to EBITDA, VAC and HGB at zero to 1 times. Would you envision the capital structure somewhat similar to what we are seeing with these comparables?

Well, first of all, Patrick, thank you very much for those kind words; there's a lot of work that goes into this. And Tom and I are speaking on the call, but we have people who've been working around the clock for months to get this done. So, appreciate those kind words.

Yes, it's hard for me to say right now, Patrick, what the capital structure is going to look like. I would make a couple of observations. The first is we start off coming out of the blocks as an investment grade company. So our leverage has been investment grade leverage.

The timeshare business is going to look different than VAC or HGV because we have RCI in there as well, which is a low capital need, high cash flow business. And so, it does change the dynamic somewhat.

In addition, our hotel business is bigger than Choice's business, and our cash flow is going to be higher than theirs. So I don't know that I would necessarily point to them as comparables.

We'll work through this and David Wyshner, who is joining us, as I talked about before -- David is a very strong capital markets person; he spent a lot of time with Merrill Lynch. And he was our treasurer at Cendant where we had a very complex capital structure and then worked his magic over at Avis Budget on the capital structure there. So, I'm looking forward to him getting engaged and helping us think through this as well.

Tom and I have burned a lot of brain cells on this and we certainly can use more assistance on getting to the right answer. But unfortunately, I don't have the perfect answer to your question yet.

Okay, we will wait and see on that. Next question; we noticed a sizable bump up in the development pipeline, especially for hotels. Did any of that have to do with the AmericInn acquisition or is that organic?

No, it did not. AmericInn is not included yet; we haven't closed on that transaction. So that will be a nice little bump as well in the future.

Oh, okay. And then when you say development, are these ground up developments we're talking, new builds, or are these --?

Patrick, in my commentary I pointed out that some of that growth was coming from new development both in the states and outside the United States.

Okay. And then one last question, if I may, and this is actually going to be for Mike and Geoff, I'll put you on the spot here. For each of you, if you could single out what you believe is the single greatest opportunity in your respective companies or divisions once you take the helm.

Do you want to be Mike and I'll be Geoff?

Yeah, we don't have Mike and Geoff on the call, Patrick. But we'll get them on in the future. But they're both very excited. They're actually meeting with their teams today and I think that both of them recognize the importance of driving growth of the business and being very mindful on capital allocation.

So, I think they're -- you're going to see a very similar trend to what you've seen in the last 11 years at Wyndham.

Okay, very good. Thank you.

David Katz, Telsey Group.

Congratulations to all of you and, Tom, good luck earning your next nickname.

Next nickname; we'll figure out what that's going to be down the road. Thanks.

Not that there's anything wrong with having cash flow in it, but maybe we can come up with something.

It served its purpose.

It served its purpose, it has. And to that end, my one question is -- you commented that share repurchases philosophically will change from -- to a more opportunistic approach. Could you elaborate on what that means and how you're thinking about it?

Well, what it means is we've been really programmatic. If you follow what we've done, we've done $150 million a quarter for a long time. And it may bump a little bit above that, but it's been basically in that ZIP Code.

We're going to be going through a process of determining what the capital structures are. We are going to have costs associated with this transaction. We are buying AmericInn; we announced Love Home Swap that we bought earlier this week. So we have been active on the M&A side.

So, we just don't want to be misleading anybody to say that it's going to be as simple cookie cutter as it has been for the last maybe six or eight quarters. That we may have to be more opportunistic and engage cash flow coming in and then make decisions about our spend levels. But as Tom said, we're neighborhood of $800 million, we feel good with that.

And we may have to consider adjusting where we stand on our share repurchase. But I would not be shocked to see us end the year at $600 million like we have before. We just want to make sure that we're not saying something that -- we haven't left an impression that could be in any way missed and that was the purpose of that comment. So thanks for clarifying.

You're welcome. Is there a point at which you are prohibited from being in the market through this process?

No, our usual approach is to put a 10b-5 program in place as we approach earnings time. And we have had one in place for quite some time. And I would anticipate that we would do that in the future. We'll put a 10b-5 in place as we come towards earnings. I don't believe -- I haven't been told that there's anything that will restrict us from being in the margin.

Correct. In fact, we had put in place some time ago a 10b-5 that allowed us to repurchase shares as the Board was going to consideration. So, we're familiar with the mechanism to continue to buy shares where we believe it's important to buy shares.

Got it. My one follow-up is that the business has clearly -- timeshare specifically has clearly evolved and is evolving. If Mike were on the call, or what comments can you offer about how the competitive landscape has changed? Is it becoming easier or harder for you to sell? And how do you expect that to change in the future after the spin?

Well, the competitive landscape -- we actually probably have less competitors than we had five years ago, just because there's been some consolidation in the industry. And the fact is this is not a business where we compete at the sales table for someone.

This is not like driving down a road and seeing four hotels and deciding which hotel you're going to go into. You're marketed to go on a tour, we tell you about our product, we make sure that we explain it in the most clear manner, and you may or may not decide to buy from us. But you're not sitting -- and the next table has a competitor.

So really, the only competition in this business is for salespeople and we're the biggest and we think we have a very attractive proposition for our sales force. And so, we feel at the end of the day that we've got the best team out there. But it really hasn't changed -- the competitive landscape has not really changed much.

Last quarter is evident of that with the 9% growth in VOI and growth in new owners and we believe a trend that will continue well into the future.

Absolutely.

Got it. Thanks very much. Good luck.

Stephen Grambling, Goldman Sachs.

Given the strong growth in new owners and timeshare, are you finding any difference in those owners that you're attracting now versus the existing phase or additions over the past few years as we think about it from a demographic or geographic standpoint?

No, not really. The FICO scores are right in line or a little bit up from what they were before, right in line, and the demographics I would say are the same. I don't think there will be any shift when we start driving more sales through our blue thread at the Hotel Group because that demographic profile is very, very similar to what we already have as our owner base within Wyndham Vacation Ownership. So I think it's very consistent.

And then turning back to the spin and I guess thinking through the comments on growth and capital allocation, can you provide a little bit more color on where you think the greatest fundamental opportunities should come in separating each company if we separate out organic growth opportunities, accelerating M&A, margins and capital allocation?

Well, yes, I will address that because 11 years ago when we spun off of Cendant, I know the excitement around the opportunity was palpable, as I'm sure it will be in the Hotel Group and the timeshare group. And it's because your focus is heightened and your opportunities are more driven by that particular business in which you're located.

So, right now all of our senior management team is compensated in large part by the overall Wyndham Worldwide story. And that will change with the new business, so you end up with a much tighter focus on just your business.

The other thing is, when we spun off 11 years ago, I had high hopes and aspirations for doing a lot of M&A because I've done that my entire career and I thought that this would be a great vehicle. Unfortunately the market did not provide us that opportunity with the multiple we were trading at, so it limited us in our ability to do transactions.

So I think both of these vehicles with significant free cash flow, and with hopefully a multiple that is more indicative of its value, will be able to be more aggressive and more active in the M&A landscape.

And with the scale that timeshare has, it will make it a very prominent participant in acquisition activity in timeshare.

Helpful color. Best of luck with the spin and the future roles. Thanks.

Harry Curtis, Nomura Instinet.

Good morning, everyone, and particularly to Margo who no longer has to deal with knuckleheads who don't have a buy rating on your stock (laughter). Just wanted to follow-up on kind on philosophically where the post-split businesses are going to go, because the strength of Wyndham has been, from a shareholder's perspective, the really strong returns of cash.

And it sounds like this is really going to evolve -- these businesses are going to really evolve more into growth companies. So, do you have any sense of what the balance is going to be between growth and returning cash to shareholders?

Well, I'd tell you, Harry, really I don't know how to answer that question because I don't know what the opportunities are that exist. There are -- there will be transaction capability in both of these industries and we'll just have to see how it develops.

But I think it's very safe to say, and you'll hear from Geoff and Mike individually in the future, I think it's safe to say that neither of them feel that their companies should be banks, which was what I said when we first started Wyndham Worldwide. We're not a bank; we're not going to sit on cash. We don't need to harbor cash.

So I think the idea of returning capital to shareholders will be consistent. But that is my view and I think it's shared by both Geoff and Mike and you'll hear from them directly as we go through this process.

Very good. And the second question is if I were to -- going back to the European rental piece, if I were to give you -- I'm interested in what the -- kind of the general range of what the multiples paid for those pieces might be. And if I give you kind of 7, 9 to 11 times EBITDA multiples, could you at least point us in the right direction?

No (laughter). I can tell you that our acquisition multiples were below that. But we were playing in a market that had not really developed that much from a M&A standpoint. So it was kind of a morbid -- it was a market that was morbid. It was a little quiet. So we were able to step in and make some really attractive acquisitions.

Then we were able to connect the businesses and build some additional technology that have helped the businesses. So I can't really tell you what we paid for the businesses, and I don't know what the market will pay for it either. I know that these are terrific business. We have world class management running each one of these businesses.

It's completely an -- impressive organizations over there and it's kind of unfortunate that it was part of the story with Wyndham Worldwide that Margo, Tom and I would always say: it's funny that the Street doesn't understand how good the businesses are. But it is what it is and I think that the market over there will appreciate it.

Very good. Thanks and best wishes.

Jared Shojaian, Wolfe Research.

Steve, I think you said 40% of sales volume came from new owners in July. How much was that up year over year? And can you give us a sense of the VPG in July as well?

No on VPG because we don't want to get into the habit of giving monthly VPG numbers. I believe that the number -- the new owner number was down in the low 30%s and it was a little over 40% this quarter. I believe that's correct. I'm getting a thumbs up from Tom so I think that's right.

Okay, so let me try to ask this a little differently then. Your new owner cadence from the first and second quarter implies that you're going to need somewhere around I think 40% growth in the back half to get to your 23% target. So first, correct me if I'm wrong, if I'm not doing my math right.

And then, as a follow-up to that, if VPG is down 1% this quarter with only 10% growth in new owners, how do you think about VPG in the second half if you're ramping to somewhere around that 40% growth in new owners?

Well, we didn't change our guidance on VPG, so I guess you can assume that we're comfortable with that level. As for new owner growth, this is ramping, as you said. We've been ramping it from January, February, March. July was the best month we've ever had and we will continue to ramp up our new owner initiatives.

The fact is that -- and I've said this to people before, that when Mike came on board one of his comments was he loves the new owner initiative. He just wants to make sure that they're new owners that will stick. And so, he has been very clear with the organization that we need to deliver new owner sales and new owner sales that are not going to default.

And so, that has been a focus not just on FICO score, because we were good on FICO score, but on making sure that we deliver the kind of experience that the owner needs to have in order to feel good about their purchase and stay in our system. And so, Mike has been really crystal clear about that.

The organization has responded in a big way. I still stay very connected to the sales organization down there and they are a fired up group of people. And I will see a bunch of them in the Wyndham Championship in two weeks when they come down for their sales incentive program down in Greensboro, North Carolina.

Okay, thanks. And just one last one for me. I know you said the acquisitions are accretive to next year, but should you still get some benefit this year and is that reflected in your guidance? And then maybe you can give us a sense for the EBITDA contribution and how much hits in 2017 versus in 2018?

We are not saying that anything is going to be built into 2017 just because the way accounting works now all the costs associated with the transaction get dumped in the current period versus being built into the acquisition like it used to be in the good old days.

So, it makes us kind of breakeven this year on those. But we will get accretion in next year's earnings. And I think once we get ready to start talking about next year we will give you a sense of what that looks like.

Okay great. Thank you very much.

It appears we have no further questions. I will return the floor to Steve Holmes for closing comments.

Thank you very much, Keith, I appreciate that. Thank you for joining us and thank you for all your support of the Company. We encourage you to watch the Wyndham Championship in two weeks and I want to thank again Tom for everything that he has done for the Company and for us. Thank you very much.

And this will conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.